Accounting Ch.9

What are long-lived assets?

Tangible and intangible resources used in operations over several years.

What are tangible assets?

Long-lived assets with physical substance (can be seen/touched).

What is another name for tangible assets?

Fixed assets.

What are intangible assets?

Long-lived assets with no physical substance but legal rights.

What does it mean to capitalize a cost?

Record a cost as an asset instead of an expense.

What costs are included when acquiring a long-lived asset?

All reasonable and necessary costs to acquire and prepare it for use.

How is a basket purchase allocated?

Based on relative market values of the assets.

What are ordinary repairs and maintenance?

Small, frequent costs that maintain an asset; expensed.

What are extraordinary repairs?

Large, infrequent costs that increase usefulness; capitalized.

What is depreciation?

Allocation of the cost of a tangible asset over its useful life.

What account accumulates depreciation over time?

Accumulated Depreciation.

What is book value?

Cost minus accumulated depreciation.

What three factors determine depreciation?

Cost, useful life, residual value.

What is depreciable cost?

Cost minus residual value.

Which asset is NOT depreciated?

Land.

What is the straight-line method?

Equal depreciation expense each year.

What is the straight-line formula?

(Cost − Residual Value) ÷ Useful Life.

What is the units-of-production method?

Depreciation based on usage/output.

What is the units-of-production formula?

(Cost − Residual) × (Actual ÷ Total Expected Output).

What is the declining-balance method?

Accelerated depreciation (more early, less later).

What is the common declining-balance rate?

2 ÷ Useful Life (double-declining).

What must be done before disposing of an asset?

Update depreciation to date of disposal.

How is gain or loss on disposal calculated?

Proceeds − Book Value.

What is a trademark?

Exclusive right to use a name, image, or slogan.

What is a copyright?

Protection for creative works (life + 70 years).

What is a patent?

Right to exclude others from an invention (20 years).

What is goodwill?

Excess purchase price over net assets acquired.

When are intangible assets capitalized?

When purchased.

What are R&D costs?

Expensed due to uncertainty of future benefits.

What is amortization?

Allocation of cost of intangible assets over useful life.

Which intangibles are NOT amortized?

Those with indefinite life (e.g., goodwill, trademarks).

What is the fixed asset turnover ratio?

Measures revenue generated per dollar of fixed assets.

What is the formula for fixed asset turnover?

Revenue ÷ Average Net Fixed Assets.

What does a higher turnover ratio indicate?

Greater efficiency.